Managing Director's LETTER  - (FROM 2008 ANNUAL REPORT)

Dear Shareholders

After another 12 months of solid progress Exco is poised for production from its key projects. In 2008 we promised substantial news flow as the Company looked to step up its activities in NW Queensland. Those of you who have followed Exco’s progress over the last 12 months will appreciate just how busy and successful a period it has been. The Company has continued with its aggressive exploration and resource development strategy, and has advanced to a Definitive Feasibility Study on the Cloncurry Copper Project (CCP). We have also moved significantly closer to development of the White Dam Gold Project in South Australia.

Amongst the many and varied activities there have been some obvious highlights including;

• Major increases in the JORC Compliant resource base in NW Queensland, which now stands at a total of 49.3Mt (up from 34.8Mt in 2007, and 26.8Mt in 2006),

• Completion of a Pre-Feasibility Study for the CCP, which in our view has successfully demonstrated the technical and commercial credentials of the project, and

• 100% conversion of the A$0.35 option exercise in June 2008, ensuring the Company remains adequately funded to achieve our objectives for the foreseeable future.

In the current market, a Company’s strength will inevitably be measured by the quality of its assets and management. The recent and ongoing drilling successes across our NW Queensland portfolio have clearly demonstrated the pedigree and potential that exists. The accompanying resource increases underpin the current development strategies, which of course include not only the construction of a stand-alone concentrator at our flagship E1 Camp, but also the potential to supply ore to the nearby Ernest Henry Mine owned and operated by Xstrata. The Board and Management will continue to review and evaluate these strategies, and importantly have the experience and track record to do so objectively. As ever, we will remain focused on creating maximum value for our shareholders.

In thanking my colleagues for their support and input over the last 12 months, I would also like to welcome our newest recruits who have unquestionably bolstered the strength and depth of the Exco team. Peter Reeve (CEO of Ivanhoe Australia) joined the Board as a non-Executive Director in May 2008, and Eamon Byrne joined the team as Chief Financial Officer and Company Secretary in September 2008. We look forward to their contribution as we move closer to achieving our development and production objectives.

I would also like to recognise the significant efforts of those contractors who have been engaged in helping us achieve our objectives. Importantly their professionalism has ensured the completion of key project activities on time and on budget.

Finally I would sincerely like to thank all of our shareholders for your support and encouragement. We look forward to keeping you informed of our further progress throughout 2009.

Michael Anderson

Managing Director